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Mexico PMI December 2015

Mexico: Manufacturing indicator suggests moderation at the end 2015

January 4, 2016

Weak global demand and slowing activity in the U.S. economy at the turn of the year weighed on Mexico’s manufacturing sector. The seasonally-adjusted manufacturing indicator elaborated by the Mexican Institute of Finance Executive’s (IMEF) fell from 52.2 in November to 50.7 in December. This result marked the first drop following two consecutive increases. December’s drop came in also below the 51.5 the markets had expected and pushed the indicator dangerously close the 50-threshold that separates expansion from contraction.

The moderation resulted from slower manufacturing output, with the indicator falling to the lowest level in nine months. As activity cools, firms reported that employment levels remained virtually unchanged compared to the previous month. A positive takeaway came from new orders, which increased in December and supply deliveries improved marginally over the previous month. Reflecting the increase in new orders and the drop in production was a drop in inventory levels, which suggests that production is likely to increase at the outset of 2016.

The strong dollar is taking a heavy toll on the U.S. manufacturing sector. The manufacturing index elaborated by the Institute of Supply Management (ISM) declined from 48.6 in November to 48.2 in December, indicating that the U.S. manufacturing sector remained in contraction for the second consecutive month. A reading above 50 indicates that the manufacturing sector is expanding; below 50 indicates that it is generally contracting.

Another indicator that measures performance in the manufacturing sector—the Markit Manufacturing Purchasing Managers’ Index (PMI)—showed that activity continued to expand in December, although at a slower pace. The PMI fell from 53.0 in November to 52.4 in December. The indicator continued to signal expansion in the manufacturing sector, but fell to the lowest level in three months.

According to Markit, the latest data showed that manufacturing production continued to rise in December, but the rate of expansion was the slowest since September. That said, new orders and employment levels improved over the previous month. December’s survey showed that Mexican manufacturers registered an increase in input prices, mainly due to higher prices in imported goods. Markit concluded that, “Mexico’s manufacturing sector was firmly in expansion mode during December, but overall growth eased to a three-month low and remains much weaker than seen at the start of 2015.”

Panelists participating in the LatinFocus Consensus Forecast expect Mexican industrial production to increase 2.8% in 2016, which is unchanged over the previous month’s projection. Panelists see industrial production expanding 3.5% in 2017.

Author:Ricardo Aceves, Senior Economist

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Note: Composite index in the manufacturing report on business (PMI) for the U.S. and seasonally-adjusted manufacturing index for Mexico. Markit Manufacturing PMI. Readings above 50 points indicate an expansion in the manufacturing sector while readings below 50 points indicate to a contraction.Source: Institute for Supply Management (ISM), Mexican Institute of Financial Executives (IMEF, Instituto Mexicano de Ejecutivos de Finanzas) and Markit.

Sentiment among Mexican consumers deteriorated in January as uncertainty surrounding both NAFTA negotiations and upcoming domestic elections seemingly outweighed the effects of a tighter labor market and softer inflation.